Monday, February 21, 2011

Super & Allocated Pensions – under the age pension age

The last post we discussed the issues surrounding allocated pensions and ‘money in the bank’.

What we did not highlight was the implications should a partner be under the age pension age.

If a pensioner has a partner under the age pension age, then super assets of that partner are not taken into account. However if the partner starts an allocated pension / income stream, then the asset value, and income will come into the Centrelink pension calculations.

Swapping the allocated income stream back to an accumulation phase super will reverse the treatment by Centrelink.

Wednesday, February 16, 2011

Allocated Pensions vs ‘Money in the bank’

A few press articles of late, and a few clients confused on the impact on their pension. Seems to be based on the belief that it is better to take the money out if their allocated pension (life time pension) and put the money into the bank.

Whilst there are many issues, we will simplify the key Centrelink points to provide a basis of understanding before discussing the issues with a financial advisor.

As an example, let’s say a client has an allocated pension of $200,000. Now roughly speaking, Centrelink will allow the client to draw down on that pension without impacting on the income test. For example, if the client had a life expectancy of 20 years when the allocated pension started, then withdrawals/income of less than $10,000 pa ($200,000 / 20 years) will not be counted as part of the income test. Amounts in excess of $10,000 pa would come under the income test.

Now if the client took the money out and placed it in a bank, all the money would be ‘deemed’. So, if the client was single, then the client may be assessed as ‘earning’ more than $8,000 pa; potentially meaning a pension loss of up to $4,000 pa.

Other example are provided on the Governments FAHCSIA page provided below

http://www.fahcsia.gov.au/guides_acts/ssg/ssguide-4/ssguide-4.9/ssguide-4.9.2/ssguide-4.9.2.30.html

Sunday, February 6, 2011

Sale of a Home and the Assets Test

Another big week for a client. The client had advised Centrelink of changes to his assets – as he is required to do, and he 'lost' the pension.

He provided new bank balances which included proceeds from the sale of his home - $500,000. Unfortunately he did not advise Centrelink that it was his home that was sold, and the new asset levels placed him over the threshold for the pension!

We corrected the Centrelink records which resulted in him being provided with 12 months exemption from the assets test for the proceeds if the house sale; and we were also able to get him rent assistance for the period.

He was not on the same full pension as previously, as he was benefiting from the proceeds being invested in a term deposit. In simple terms he had invested the $500,000 in a term deposit of 6%; therefore receiving approximately $30,000 per annum in interest. Therefore Centrelink reduced his pension by 50cents in the dollar for this interest - $15,000 pa.

Instead on the original full pension of $716pf, he now receives less than $140pf from Centrelink. But he also receives the equivalent of more than $1150pf in interest. His new new total income level is more than $1300pf, much more than he was previously receiving, and better that the original Centrelink outcome of no pension at all! Plus he is getting rent assistance.

A word of warning though, his ‘cash flow’ is severally impaired as he was not going to get his interest payment until the end of the term – yet his pension was immediately affected. He is now altering his term deposit to enable a better cash flow.